But display advertising has proven to be a limited source of cash, and Facebook is focusing revenue streams from other sources. As the company itself noted in its SEC filing, “In 2009, 2010 and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85% and 82%, respectively, of our revenue.”
(The company also gets a growing proportion of its revenue from fees paid by third-party apps and plug-ins, including 12 percent of overall revenue from Zynga alone, the company behind the popular game Farmville.)
The solution to the diminishing ad business, it seems, is tied to making Facebook into what Mr. Zuckerberg has called an “identity layer” for the entire web. That is to say that in his ideal version of the site (and world), everything you do on the Internet will be through Facebook, including online transactions.
This is ambitious, but given the size of its user base, and how thoroughly it is already ingrained in people’s Internet habits, imminently achievable. Even a modest version of this would be an revenue juggernaut. If the company were to, say, realize a revenue rate of 1 cent a day per user, by taking a percentage of transactions from vendors, that would be roughly $10 M. a day, or $3.5 B. a year. And that seems to be on the very conservative end of the hopes.
Now, this is troublesome when the head of the company has, let’s say, “innovative” ideas about privacy. In 2010, Silicon Alley Insider obtained instant message conversations from when Mr. Zuckerberg was still christening Facebook at Harvard, in which he refers to users who have voluntarily given over their personal information as “dumb fucks.” The bluster of a power-drunk 19-year-old, maybe, but in 2010, tech blogger Nick Bilton tweeted an exchange he had with a Facebook staffer. “Off record chat w/ Facebook employee. Me: How does Zuck feel about privacy? Response: [laughter] He doesn’t believe in it,” the tweet said.
And indeed last week, the company was hit with a $15 billion class action lawsuit from a group of users claiming the company violated the US Wiretap Act by tracking their Internet use after they had logged out of Facebook.
The fact is, the more information Facebook gathers about you, and the more ways it has to monetize that information, the more the company is worth. Mr. Zuckerberg wrote in his letter to investors, “Facebook was not originally created to be a company. It was built to accomplish a social mission—to make the world more open and connected.” Even taking this at face value, it doesn’t really matter anymore. It is a company, and a publicly held one at that. And even though Mr. Zuckerberg has a controlling interest in Facebook, it now has to be accountable to stockholders. The tension between user privacy and monetizing data in service of stock price is a real one—and seems unlikely to fall on the side of users.
I see congressional hearings in our future.
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